Masonite International Stock Shows Every Sign Of Being Significantly Overvalued
- By GF Value
The stock of Masonite International (NYSE:DOOR, 30-year Financials) shows every sign of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $124.01 per share and the market cap of $3 billion, Masonite International stock shows every sign of being significantly overvalued. GF Value for Masonite International is shown in the chart below.
Because Masonite International is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 9.9% over the past five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Masonite International has a cash-to-debt ratio of 0.34, which is worse than 67% of the companies in Construction industry. GuruFocus ranks the overall financial strength of Masonite International at 5 out of 10, which indicates that the financial strength of Masonite International is fair. This is the debt and cash of Masonite International over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Masonite International has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $2.4 billion and earnings of $3.46 a share. Its operating margin is 9.64%, which ranks better than 73% of the companies in Construction industry. Overall, the profitability of Masonite International is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Masonite International over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Masonite International is 9.9%, which ranks better than 77% of the companies in Construction industry. The 3-year average EBITDA growth is 13.9%, which ranks better than 70% of the companies in Construction industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Masonite International's ROIC is 11.22 while its WACC came in at 9.84. The historical ROIC vs WACC comparison of Masonite International is shown below:
In closing, the stock of Masonite International (NYSE:DOOR, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 70% of the companies in Construction industry. To learn more about Masonite International stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
